Farmers and ranchers are invited to attend a FREE clinic. The clinics are one-on-one, not group sessions, and are confidential. The Farm Finance clinic gives you a chance to meet with an experienced Ag law attorney and Ag financial counselor. These clinic staff specialize in legal and financial issues related to farming and ranching, including financial planning, estate and transition planning, farm loan programs, debtor/creditor law, water rights, and other relevant matters. Here is an opportunity to obtain an experienced outside opinion on issues that may be affecting your farm or ranch. Bring your questions!

The FREE farm and ranch clinics will be in these locations:

Grand Island – Thursday, 7th

North Platte- Thursday, 14th

Fairbury – Thursday, 21st

Valentine – Tuesday, 26th

Norfolk – Wednesday, 27th

To sign up for a clinic or for more information, call Michelle at the Nebraska Farm Hotline: 1-800-464-0258.

The Nebraska Department of Agriculture and Legal Aid of Nebraska sponsor the farm finance clinics.

Complete
the application. (The application consists of both short answer and essay
questions and requires veterans to submit a business plan.)

Submit
Application.

Wait
for the award announcements in April.

Webinar

A webinar to review the application followed by a
Q&A session will be held Wednesday, February 13 at 2:30 p.m. PST.
Registration is limited to the first 500 participants, but a recording will be
posted to the Fellowship web page after it’s completed. To register, go to https://attendee.gotowebinar.com/register/8095158054240674827.

Are you currently a Veteran Farmer or Rancher in need of agricultural education, financial, or legal assistance?

Did you know that there are programs and services that are designed specifically to help Beginning Veteran Farmers and Ranchers?

The Legal Aid of Nebraska has a Veteran Outreach Program that wants to help you the Veteran achieve your goals of joining Nebraska’s agriculture industry, or help to continue your agricultural enterprise.

The Legal Aid of Nebraska and its Partners would like to:

Assist Veteran farmers and ranchers in owning and operating successful farms and ranches.

Improve participation among Veteran farmers and ranchers in USDA programs.

Build relationships between current and prospective Veteran farmers and ranchers and USDA’s local, state, regional, and national offices.

Farmers and ranchers are invited to attend a FREE clinic. The clinics are one-on-one, not group sessions, and are confidential. The Farm Finance clinic gives you a chance to meet with an experienced Ag law attorney and Ag financial counselor. These clinic staff specialize in legal and financial issues related to farming and ranching, including financial planning, estate and transition planning, farm loan programs, debtor/creditor law, water rights, and other relevant matters. Here is an opportunity to obtain an experienced outside opinion on issues that may be affecting your farm or ranch. Bring your questions!

The FREE farm and ranch clinics will be in these locations:

Norfolk – Friday, Jan 4

York -Thursday, Jan 10

Norfolk – Thursday, Jan 17

Valentine – Friday, Jan 18

Fairbury – Wednesday, Jan 30

To sign up for a clinic or for more information, call Michelle at the Nebraska Farm Hotline: 1-800-464-0258.

The Nebraska Department of Agriculture and Legal Aid of Nebraska sponsor the farm finance clinics.

Farmers and ranchers are invited to attend a FREE clinic. The clinics are one-on-one, not group sessions, and are confidential. The Farm Finance clinic gives you a chance to meet with an experienced Ag law attorney and Ag financial counselor. These clinic staff specialize in legal and financial issues related to farming and ranching, including financial planning, estate and transition planning, farm loan programs, debtor/creditor law, water rights, and other relevant matters. Here is an opportunity to obtain an experienced outside opinion on issues that may be affecting your farm or ranch. Bring your questions!

The FREE farm and ranch clinics will be in these locations:

Grand Island – Thursday, Dec. 6th

Norfolk – Friday, Dec. 7th

North Platte – Thursday, Dec. 12th

Lexington – Thursday, Dec. 20th

To sign up for a clinic or for more information, call Michelle at the Nebraska Farm Hotline: 1-800-464-0258.

The Nebraska Department of Agriculture and Legal Aid of Nebraska sponsor the farm finance clinics.

Farmers and ranchers are invited to attend a FREE clinic. The clinics are one-on-one, not group sessions, and are confidential. The Farm Finance clinic gives you a chance to meet with an experienced Ag law attorney and Ag financial counselor. These clinic staff specialize in legal and financial issues related to farming and ranching, including financial planning, estate and transition planning, farm loan programs, debtor/creditor law, water rights, and other relevant matters. Here is an opportunity to obtain an experienced outside opinion on issues that may be affecting your farm or ranch. Bring your questions!

The FREE farm and ranch clinics will be in these locations:

Grand Island – Thursday, November 1

North Platte – Thursday, November 15

Lexington – Thursday, November 15

Norfolk – Tuesday, November 20

Fairbury – Thursday, November 29

To sign up for a clinic or for more information, call Michelle at the Nebraska Farm Hotline: 1-800-464-0258.

The Nebraska Department of Agriculture and Legal Aid of Nebraska sponsor the farm finance clinics.

A rancher once said, “No one has the right to automatically inherit a family farm or ranch… but everyone has the right to know what is going on.”

Passing the farm/ranch on to the next generation is a tough job, especially if the next generation is unsure of what will happen when their parents pass. It is especially for those people, who are wondering what is going on, that a series of farm and ranch transition workshops are planned at Valentine, Ainsworth, O’Neill, Norfolk and York from Oct. 23 to Nov. 14.

The workshops will focus on the needs of the “sandwich generation” between parents who still own and land and children who might want to join the operation, on whom farm/ranch transition and transfer often falls.

Lack of communication often hinders transitions. The Gen2, or Sandwich Generation, will learn how to communicate with family to understand the transition and practice asking difficult questions. A handbook and script will help farmers/ranchers to complete transition “homework.”

Legal topics presented at the workshops will center around Gen2 needs, including elements of a good business entity, levels of layers for on-farm heirs control and access, and turning agreements into effective written leases. Joe Hawbaker, estate planning attorney, and Allan Vyhnalek, Nebraska Extension transition specialist, will share stories and experiences to successfully plan on the legal side.

Transition of the land is important, but farmers and ranchers should also work to transition the business. Dave Goeller, financial and transition specialist, will cover financial considerations, retirement, and compensation versus contribution.

Many families struggle to split assets fairly between on-ranch and off-ranch heirs, while continuing the ranch as a business. Goeller will discuss the family side and what to consider when dividing assets. Vyhnalek will also cover less-than-ideal situations, negotiating, and looking for other business options.

Below are workshop dates and locations. The times are 9 a.m.-4:30 p.m. local time at each location. Pre-register one week prior for a meal count.

Farmers and ranchers are invited to attend a FREE clinic. The clinics are one-on-one, not group sessions, and are confidential. The Farm Finance clinic gives you a chance to meet with an experienced Ag law attorney and Ag financial counselor. These clinic staff specialize in legal and financial issues related to farming and ranching, including financial planning, estate and transition planning, farm loan programs, debtor/creditor law, water rights, and other relevant matters. Here is an opportunity to obtain an experienced outside opinion on issues that may be affecting your farm or ranch. Bring your questions!

The FREE farm and ranch clinics will be in these locations:

Grand Island – Thursday, October 4th

North Platte – Thursday, October 11th

Norfolk – Friday, October 12th

Fairbury – Wednesday, October 17th

Lexington – Thursday, October 18th

Valentine – Monday, October 22nd

Norfolk – Monday, October 22nd

To sign up for a clinic or for more information, call Michelle at the Nebraska Farm Hotline: 1-800-464-0258.

The Nebraska Department of Agriculture and Legal Aid of Nebraska sponsor the farm finance clinics.

The last 15 months have seen an increase in Chapter 12 bankruptcy filings among farmers and ranchers in Nebraska.

As production costs continue to exceed commodity prices, more farmers will likely be filing Chapter 12 bankruptcy.

Joe Hawbaker, an agricultural law attorney in Omaha, Neb., said there has been a significant increase in filings, with a 30 percent increase between 2016 and 2017, and 2018 being on pace to exceed 2017.

Chapter 12 bankruptcy is “typically the last tool a farmer or rancher reaches for,” Hawbaker said.

Chapter 12 bankruptcy laws were created in 1986 during the farm crisis, with the purpose of giving family farmers a fighting chance to reorganize their debts and keep their land.

A bankruptcy case begins with a filing in U.S. bankruptcy court. The bankruptcy estate is property owned by the debtor as of the date of filing. Claims (or debts) against the debtor are generally classified as one of three basic types: secured claims, unsecured claims, and priority claims. Secured claims are secured by a lien on the debtor’s property, whether real or personal. Unsecured claims are not secured by a lien on the property, because there is no collateral to secure the claim (for example, some medical debts, credit card debts and open account purchases). A priority claim has special status under bankruptcy laws, such as certain claims for taxes, child support, alimony and the cost of the bankruptcy. Priority claims usually have to be paid in full.

Exemptions allow the debtor to protect certain property from the claims of creditors and vary from state to state. Chapter 12 bankruptcy is a reorganization bankruptcy, as compared to a liquidation bankruptcy. In a liquidation, the debtor tries to erase debt by giving up non-exempt property.

PAYING OFF DEBT

In a reorganization, the idea is that the debtor keeps possession of the property that they want or need to keep, while paying their debt under the terms and conditions of the bankruptcy. In other words, you pay for what you keep and surrender what you don’t want or cannot afford to keep.

The goal of bankruptcy is the discharge, the court order that makes legally binding the conditions of the bankruptcy, namely, the forgiveness or restructuring of debt.

What Chapter 12 bankruptcy does is put up a wall around a farmer’s or rancher’s operation. The wall, called the automatic stay, prevents creditors from collecting debt through repossessing collateral, garnishment or foreclosure. It gives the debtor a little breathing room in which to comply with the Chapter 12 procedures and to come up with a plan of reorganization.

Chapter 12 also allows debtors to restructure debt and may also allow some debt to be written off, partially or entirely. It helps in dealing with tax debts like capital gains or recaptured depreciation, that come from selling farm assets.

After filing, the immediate pressure a debtor feels is relieved, but the hard work has just begun. Within three months of filing, the debtor, working with his or her lawyer, must put together a Chapter 12 plan, a plan of reorganization, showing how the farm or ranch will keep going.

The core of the plan is how creditors’ claims will be handled. For secured claims, claims that have a lien on the debtor’s property, the debtor may propose to restructure them based on the collateral that secures the claim. A secured claim must be paid at least as much as the value of the collateral that secures it. Valuing the collateral relative to the amount of the claim is an important part of the bankruptcy. A claim secured by land can be reamortized over 20 (sometimes to as many as 30) years and paid in installments that coincide with when funds are available (i.e., when crops or livestock are sold). A claim secured by machinery or equipment can be restructured over three to seven years, depending on its quality. A claim secured by livestock can be restructured for payment over five to 10 years, depending on the livestock. One of the goals of Chapter 12 for the debtor may be to get as long a payout as possible, in order to lessen the burden on the cash flow. Another benefit to Chapter 12 bankruptcy is to structure payments so they are due when the debtor is most likely to have funds, for example, in late winter for row crop farmers.

Unsecured claims are handled differently than secured claims. Unsecured claims do not have any collateral securing them, so they are handled under what is called the liquidation analysis. If the debtor had filed under Chapter 7 (liquidation) instead of Chapter 12 (reorganization) bankruptcy, what would the creditors have received? Payment in full? Fifty cents on the dollar? Nothing? Value of the farm debtor’s property is determined, then certain things are subtracted from the value: the amount of the secured claims, the debtor’s exemptions, and the hypothetical cost of sale of the assets. Any amount that remains in the value of the estate property is the amount available to proportionally pay unsecured creditors. The amount they must be paid ranges from nothing to full payment, depending on the value of the debtor’s property and the amount of the unsecured claims.

The Chapter 12 plan is usually set for three years, sometimes five. Unsecured claims typically have to be paid within that period of time, often without interest. If creditors or the trustee of the bankruptcy object to the plan of reorganization, the debtor must put his disposable income towards the unsecured claims. However, there may be very little disposable income.

PRIORITY CLAIMS

Priority claims usually must be paid in full. Child support and alimony are usually paid in accordance with court orders. Taxes are often priority claims. But if taxes were filed and due more than three years before the bankruptcy was filed, they may be considered unsecured claims. Another advantage of Chapter 12 is that if a farmer sells farm assets, the tax claims from those sales can be treated as unsecured claims and they may not have to be paid in full or at all.

Farmers and sometimes ranchers usually borrow money for operating expenses each year. Borrowing that money when a person has filed Chapter 12 can be a problem. If a farmer files bankruptcy before the crop is planted, the new crop can be pledged as collateral to the lender.

With the new crop, the lender may have a first lien on that crop, on crop insurance, and on Farm Service Agency payments. Chapter 12 financing is often limited in value to the guaranteed crop insurance coverage. Livestock financing may be more difficult to obtain, and a Chapter 12 debtor may have to operate under his own steam, gaining the release of cash proceeds of livestock to meet operating expenses.

Before Hawbaker’s clients file for Chapter 12, he does a thorough analysis with them, working out their options: Can they refinance with a new lender? Will their current lender work with them to restructure debt if certain conditions are met? Are there possibilities for a partial sale of assets that would alleviate debt? Is there assistance available through family, such as sale of assets to family? If time allows, Hawbaker likes to help his clients examine what kind of terms they will expect to receive with Chapter 12. “It’s important to understand ahead of time what a Chapter 12 can do for an operation,” he said, “to estimate what the cash flow will look like under Chapter 12 terms and to look at feasibility.” This means running numbers. The current interest rate in bankruptcy may be 6.25 percent (the Wall Street Journal Average National Prime plus 2 points).

Bankruptcies cost money. The debtor pays the trustee (in Nebraska, the fee can be as high as $6,000 a year) and his own lawyer’s fees (ranging from $7,500 to $15,000). In some circumstances the debtor has to pay his secured lender’s attorney fees, which are typically added to his debt. This is usually true when a lender is oversecured. If the debtor’s collateral is worth more than the debt, the lender is often entitled to collect attorney fees from the debtor, along with interest. Bankruptcy is “not cheap,” Hawbaker said.

There are more than financial costs to consider. “The potential stresses of having to deal with being in a bankruptcy and meeting all the requirements and deadlines, especially in the first few months,” is stressful, Hawbaker said. There’s a significant amount of stress, and people handle it differently. “Some people approach bankruptcy as a management tool. They take a more distanced, objective view of how to use the bankruptcy to solve problems. For others, everything is taken personally. Decision-making in times of great stress can become very difficult. Bankruptcy in many respects is meant to help with that difficulty.”

Debtors also have to “face down the idea of being in bankruptcy,” Hawbaker said. Bankruptcies are public record, and there may be stigma attached to those who have filed for bankruptcy. That stigma, Hawbaker said, is often based in ignorance, not of the debtor but of those stigmatizing the debtor. “There have been lots of bankruptcies filed in this nation, and some by people who went on to become great success stories.”

FINANCING

A risk that must be considered when filing for Chapter 12 bankruptcy is financing. It’s not likely that a debtor’s lender will loan them new money when they are in bankruptcy. Hawbaker advises those who are considering filing for Chapter 12, if time permits, to explore funding for the bankruptcy with another lender, even to make applications ahead of time.

Farmers who lease ground are “quite vulnerable” in a Chapter 12 filing. In order to keep the lease, the farmer must be current on rental payments and in general be able to make them as they come due. There is no guarantee a landowner will continue to rent to the debtor. Debtors with long-term contracts may be able to keep those contracts under bankruptcy rules.

Hawbaker does a lot of preparatory work with clients before and after they file. “It’s very important to establish realistic expectations of what bankruptcy is, what it will do for you, how much work it is, and the risks. This is critically important.”

In his experience, Hawbaker finds that a wide majority of his Chapter 12 clients come through bankruptcy to get their discharge, the goal (and end point) of bankruptcy, and most continue to farm. He attributes that to their determination and the preparatory work they do together before filing. He cautions people to be clear about what Chapter 12 is and what it can do for them. “The more clear-eyed and hard-eyed you can be about what’s involved, the better.”

“Succinctly put,” he said, Chapter 12 “bankruptcy gives you a chance to make next year’s payment (under restructured terms). And if you can make that payment, you get to make the next year.”

The Nebraska Farm Hotline (800) 464-0258, located in Bancroft, is a great clearinghouse of services for farms and ranches, especially those dealing with financial distress transactions. In Nebraska there are also free one-on-one clinics offered for farm and ranch families through the Nebraska Farm Mediation Service. These clinics are held in four locations every month. Information about them is available through the hotline.

For producers from South Dakota, Wyoming and Montana, help is available through Departments of Agriculture. Mediation programs can be found by calling each state’s department. For South Dakota, call (605) 773-4432; for Wyoming, call (307) 777-8788; for Montana, call (406) 444-5424.

There is evidence that in Nebraska, most farm leases are oral year-to-year leases. This is important because Nebraska law governs how to terminate such leases and September 1 is a critical day should a landowner wish to terminate an oral lease.

First, the law:

The Nebraska Supreme Court has ruled that a farm lease begins on March 1 for oral year-to-year leases. To terminate an oral year-to-year lease, however, the Court has ruled that six months notice must be given prior to March 1. In other words, to terminate an oral year-to-year lease, a notice to quit must be received by the tenant prior to September 1 of the preceding year.

Second, some examples:

Example 1:

The landowner as an oral year-to-year tenant. Landowner decides she wants to terminate her lease with Tenant because she wants her nephew to rent the land beginning March 1, 2019. Landowner sends a letter to Tenant and Tenant receives it October 30, 2018. Is the lease terminated so the nephew may rent it on March 1, 2019?

No, the lease is not terminated because an oral year-to-year lease requires a tenant to receive notice by September 1, 2018. Here, Tenant received noticed from Landowner on October 30, 2018. This means that Tenant may lease the farm land until August 31, 2019.

Example 2:

Same facts as above except now, Landowner sends a notice to quit to Tenant, which Tenant receives on August 30, 2018. Is this lease terminated so the nephew may rent it on March 1, 2019?

Yes, the lease will terminate as of February 28, 2019. Keep in mind the lease between Landowner and Tenant continues through February 28, 2019 but the Tenant has received a proper six months notice of termination, which is required under Nebraska law.

Third, some gotchas:

The above represent the default rules in Nebraska for termination of unwritten year-to-year leases. The landowner and tenant can come to a mutual, voluntary agreement to modify the default rules. Thus, if both the landowner and tenant agree, an unwritten year-to-year lease may end in June with 30 days notice. The key is that there must be a mutual, voluntary agreement to do so.

If a landowner is terminating an unwritten year-to-year lease, it is advisable to do so with a letter and not in-person. Additionally, it is best to send the notice to quit with time to spare from the September 1 deadline, as the tenant must receive the notice by September 1; it is not relevant when the landlord sends the notice.

Moreover, the above rules do not apply to written leases. To terminate a written lease, the landowner and tenant must merely review what the lease states about termination and follow the lease provisions.

If you need clarification or just want to ask about dates and deadlines, you are welcome to contact us. We’re happy to help farmers and ranchers (both landowner and tenant!).

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This website and blog is for educational and informational purposes only. Please contact legal counsel in your state (or contact us to determine if you qualify for Legal Aid of Nebraska's services) to discuss your specific questions.

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About us

Legal Aid of Nebraska's Farm and Ranch Project is the oldest continuously operating farm legal services program in the United States. Due to a grant from the USDA's National Institute of Food and Agriculture Beginning Farmer and Rancher Development Program, Legal Aid of Nebraska has the opportunity to further its range of services to Nebraska and South Dakota farmers and ranchers.